ORGANIZATION, BUSINESS AND LIQUIDITY

12 Months Ended

Dec. 31, 2023

ORGANIZATION, BUSINESS AND LIQUIDITY

ORGANIZATION, BUSINESS AND LIQUIDITY

NOTE 1 - ORGANIZATION, BUSINESS AND LIQUIDITY

Organization and Operations

These financial statements are those of Hempacco and its subsidiaries.

Hempacco Co., Inc. ("the Company" or “Hempacco”) was formed on April 1, 2019, as a Nevada Corporation.

On April 23, 2021, the Company filed a second amendment to its Articles of Incorporation changing the name of the company from The Hempacco Co., Inc. to Hempacco Co., Inc.

The Company merged with, and became a subsidiary of, Green Globe International, Inc. (“GGII”) on May 21, 2021.

On December 31, 2023, the Company acquired the controlling interest in Green Star Labs, Inc. making it a 100% wholly owned subsidiary.

We are focused on Disrupting Tobacco™ by manufacturing and selling nicotine-free and tobacco-free alternatives to traditional cigarettes. We utilize a proprietary, patented spraying technology for terpene infusion and patent-pending flavored filter infusion technology to manufacture hemp and herb-based smokable alternatives. We also offer nutritional supplement and beauty product manufacturing services through our recently acquired subsidiary, Green Star Labs, Inc.

On October 6, 2021, the California Assembly Bill Number 45 (“AB 45”) was passed into law. Despite the fact that industrial hemp is federally legal and not a controlled substance, this bill prohibits the sale of “inhalable” hemp products in California. However, the manufacture of inhalable hemp products for the sole purpose of sale in other states is not prohibited. This ban on any kind of smokable flower will remain in force until such time as the California Legislature enact a bill to tax the product. It is also legal to manufacture Delta-8 products containing less than 0.3% THC for sale in another State. 

Our Products:

We have launched the production and sale of our own in-house brand of hemp-based cigarettes, The Real Stuff Smokables, in three presentations: the twenty pack, the ten pack, and the Solito™ single pack, all of which are sold in our patented counter displays in convenience stores through master distributors.

We have also entered into several joint ventures to launch multiple smokables brands: Hemp Hop Smokables, a joint venture with rapper Rick Ross and Rap Snack's CEO James Lindsay; a joint venture with StickIt Ltd., an Israeli corporation, to manufacture cannabinoid sticks for insertion into other cigarettes; a joint venture to launch Cheech & Chong-branded hemp smokables; Hempacco Paper Co., Inc., a joint venture with Sonora Paper Co., Inc. focused on rolling papers; Organipure, Inc., a joint venture with High Sierra Technologies, Inc. focused on hemp smokables; and HPDG, LLC, a joint venture to launch smokables products with Alfalfa Holdings, LLC.

Because of the risk and uncertainty regarding the potential market for smokable products in California, the Company has focused on building its distribution network in other States and other Countries. Celebrity joint ventures bring a national demand for our products. 

In July 2022, the Company acquired two existing cigarette manufacturing lines and approximately forty tobacco trademarks in exchange for the issuance of 200,000 common shares of Hempacco common stock valued at $20.00 per share. The $4,000,000 valuation initially was allocated $3,400,000 as to machinery, and $600,000 to the trademarks. A subsequent appraisal, performed in Mexico valued the equipment at $2,278,337. No value was allocated to the trademarks. As of December 31, 2022, the Company has recorded a one-time charge of $1,121,663 to its profit and loss account in order to reduce the asset costs to net realizable value.

On August 29, 2022, Hempacco Co., Inc. (the “Company”) entered into an underwriting agreement with Boustead Securities, LLC, as representative (the “Representative”) of the underwriters (the “Underwriters”) in connection with the initial public offering of the Company (the “IPO”). The Underwriting Agreement provides for the offer and sale of 100,000 shares of the Company’s common stock, par value $0.001 (the “Common Stock”) at a price to the public of $60.00 per share (the “Offering”). In connection therewith, the Company agreed to issue 7,000 warrants to purchase shares of Common Stock, exercisable from September 1, 2022, through August 29, 2027, and initially exercisable at $90.00 per share subject to adjustment as provided therein (the “Representative’s Warrants”). The Company also granted the Underwriters an option for a period of 45 days to purchase up to an additional 15,000 shares of Common Stock. The Offering is being made pursuant to a Registration Statement on Form S-1 (File No. 333-263805) (the “Registration Statement”), which was declared effective by the Securities and Exchange Commission on August 29, 2022.

The Underwriting Agreement includes customary representations, warranties, and covenants by the Company. It also provides that the Company will indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the “Securities Act”), or contribute to payments the Underwriter may be required to make because of any of those liabilities.

On September 1, 2022, the Offering was completed. At the closing, the Company (i) sold 100,000 shares of Common Stock for total gross proceeds of $6,000,000, and (ii) issued the Representative’s Warrants. After deducting the underwriting commission and expenses, the Company received net proceeds of $5,468,813. 

Effective December 1, 2022, the Company engaged investor relations consultant Dr. Fischer and Partner GmbH of Hamburg Germany (“Fischer”) to promote the Company’s common stock in Europe and to promote the benefits of stock ownership in the Company. Fischer will also advise on the optimization of the Company’s capital structure and may introduce potential investors to the Company. The initial engagement period will be three months with the option of extension by mutual agreement. Compensation was composed of a total of $50,000 in cash, and the issuance of 1,500 shares of the company’s common stock.

Effective February 1, 2023, the Company through its representative in Warsaw, Poland, filed the equivalent of Articles of Incorporation with the court to create Hempacco Europe Sp.z.o.o. (an LLC equivalent), the corporate entity through which the Company will distribute its smokable products throughout the EU. Ownership of the entity rests 99% with the Company, and 1% with Jakub Duda, an individual.

On July 10, 2023, the Company signed a Purchase Agreement and an accompanying Assignment Agreement with Viva Veritas LLC (“Veritas”) (successor to Curated Nutra) whereby Veritas agreed to assign its 50% interest in Green Star labs, Inc. (“GSL”) to Hempacco together with additional equipment lines related to bottling and gummy production.  

The total purchase price paid by the Company was $3,500,000. The purchase price was allocated as to $1,776,000 for purchase of Green Star Labs, and $1,724,000 for the equipment. $3,200,000 of the $3,500,000 (a cash deposit of $300,000 was paid prior to closing) total purchase price was payable by the Company’s issuance of a convertible promissory note to the seller, which became effective on July 10, 2023. See Note 8 for further information regarding the promissory note.

On November 6, 2023, the Company signed two agreements with Aspire North America, LLC, (“Aspire”) as follows:

a)	Manufacturing & Supply Agreement (“MSA”)
b)	Exclusive Distribution Agreement (“EDA”)

Aspire is a leading Los Angeles based, developer, manufacturer, and marketer of cannabis vaporizer hardware.

The MSA provides for the Company, as a client of Aspire, to manufacture at Client’s Facility finished consumer vaporization goods using the products, filling Machines, their respective patents and other IP Rights embodied therein, and to fill with Client’s Finished Oils (collectively, “Finished Goods”); and (b) sell and distribute the Client Products as part of Client’s Finished Goods throughout the Territory (collectively, "Limited Distribution License").

The EDA provides for the Company, in the role of “Supplier” to award a worldwide “Master Distributor” agreement back to Ispire for all the supplier’s celebrity and influencer products produced by the Company. Ispire agrees not to sell nicotine-based products in North America..

The MSA provides for the Company, as a client of Aspire, to manufacture at Client’s Facility finished consumer vaporization goods using the products, filling Machines, their respective patents and other IP Rights embodied therein, and to fill with Client’s Finished Oils (collectively, “Finished Goods”); and (b) sell and distribute the Client Products as part of Client’s Finished Goods throughout the Territory (collectively, "Limited Distribution License").

The EDA provides for the Company, in the role of “Supplier” to award a worldwide “Master Distributor” agreement back to Ispire for all the supplier’s celebrity and influencer products produced by the Company. Ispire agrees not to sell nicotine-based products in North America.

On November 7, 2023, the Company incorporated a new wholly owned subsidiary, Hempacco Vape Co., Inc. in Nevada specifically for this new product line.

On December 31, 2023, the Company signed a Purchase Agreement and an accompanying Promissory Note with Green Globe International, Inc. in the amount of $2,500,000 for the acquisition of the remaining 50% equity ownership in Green Star Labs, Inc. thereby making GSL a wholly owned subsidiary of Hempacco Co., Inc. Hempacco, having acquired a significant interest in GSL initially accounted for its investment under the equity method following the guidelines of ASC 323. This method no longer applies due to GSL becoming a wholly owned subsidiary of Hempacco on December 31, 2023.

In order to comply with accounting standard ASC 805-50-05-5 which describes a merger or acquisition of companies under common control, thereby causing a change in the reporting entity, and considering that GGII had ceded control of GSL to HPCO with effect from July 1, 2023, the Company has consolidated the operating income and expenses of Green Star Labs, Inc. from July 1, 2023, through December 31, 2023.

Going Concern Matters

The accompanying financial statements have been prepared in conformity with generally accepted accounting principles in the United States (“GAAP”), which contemplates the Company’s continuation as a going concern. The Company incurred a net loss of $13,442,221 during the year ended December 31, 2023, and has an accumulated deficit of $23,588,666 as of December 31, 2023. During the year ended December 31, 2023, the Company’s net cash used in operations was $5,844,807.

Management intends to raise additional operating funds through equity and/or debt offerings. However, there can be no assurance management will be successful in its endeavors.

There are no assurances that the Company will be able to either (1) achieve a level of revenues adequate to generate sufficient cash flow from operations; or (2) obtain additional financing through either private placement, public offerings and/or bank financing necessary to support its working capital requirements. To the extent that funds generated from operations and any private placements, public offerings and/or bank financing are insufficient, the Company will have to raise additional working capital. No assurance can be given that additional financing will be available, or if available, will be on terms acceptable to the Company. If adequate working capital is not available to the Company, it may be required to curtail or cease its operations.

Due to uncertainties related to these matters, there exists a substantial doubt about the ability of the Company to continue as a going concern. The accompanying financial statements do not include any adjustments related to the recoverability or classification of asset-carrying amounts or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern. If we are not able to successfully execute our future operating plans, our financial condition and results of operation may be materially adversely affected, and we may not be able to continue as a going concern.